Volume and value of private equity deals in East Africa expand

A joint report which reviews the private equity fundraising, transaction and exit environment from 2007 to 2014 has just been published by consulting firm KPMG and EAVCA, the region’s Private Equity and Venture Capital Association. The study is the first the two organizations have collaborated on and gives a clearer picture of the value and volume of private equity activity in East Africa.

Approximately $1.6 billion for investments in the region was through 28 funds raisings in the seven-year period studied, with the main sources of these funds being the DFIs and High Net Worth individuals and Family Offices in Europe and North America. Most of the funds were deployed as equity through limited partnerships or through the direct investment arms of GPs and LPs, with a significant majority of investors looking for a return of the funds upon the end of the fund’s life.

Within the time period of the study, the report identifies a total of 79 worth deals worth $822 million as taking place in the region. The volume, pace and average values of the deals have all accelerated in recent years, with some 75% of total deal value deployed within the last 4 years. Average deal values, which came in at $9.5 million in 2007, rose to $87 million in2014, a reflection of the underlying growth rate of target companies as well as an increasing investor appetite for larger deals. The agriculture, financial services, FMCG, ICT and healthcare sectors garnered the most deals, with Kenya dominating the region’s investment activity, attracting some 63% of the deals.

The report found that the majority of the deals were for minority equity stakes of less than 40%, and were valued at $10 million or less. Two sectors – Financial Services and FMCG – dominated larger deal sizes, reflecting their faster maturity and growth driven by rising middle income levels.

The most common exit route was through share buy backs, accounting for 52% of exits. The report found 21 exits in East Africa valued at $260 million over the seven-year period of the study. Of those, only 3 achieved a multiple of more than three. Again, the pace of exits seem to be accelerating, with 7 of the exits executed in 2014. With the exits since 2012 all having been invested before 2007, the report suggests that holding periods are longer than five years.